Wednesday, Sept. 2, 2015

Corporate Bond Market
US stocks tanked 2.8% yesterday on evidence that China’s economy continues to weaken on the manufacturing front.  This morning trading in Europe’s equities is mixed.  US equity futures are up this morning with the S&P +12 and Dow +110.  After its strong upswing last week, oil was down yesterday and is off this morning, down $0.75 to $44.68/bbl.  Credit is slightly better this morning with the Investment Grade Index down 0.7 leaving it 83 1/2-84.1.

This morning Puerto Rico Electric Authority said it had reached an agreement with its ad hoc group of bondholders on the economic terms of a restructuring of their bonds. The agreement will cut Prepa’s $8.3bln of bondsoutstanding by about $670mln and also save $700mln in principal and interest payments over the next five years. Bondholders will also get 85% of their  existing bond claims in new securitized bonds.

There was no new issuance in the primary market yesterday and nothing posted so far this morning.

Economic data this morning: MBA Mortgage Applications (7:00an), July Durable Goods Orders (10:00 am).

 

Municipal Bond Market
Munis are unchanged this morning after rallying to start the week.  We expect to see the market focus on the secondary this morning with such a light new-issue calendar.  We saw a large amount of items out for the bid yesterday from customers with selling across the curve to take advantage of the rally.  30-day supply is slightly stronger this morning with $7.53bln on tap over the next 30 days versus $7.1bln yesterday.

In credit news, PREPA has come to a tentative agreement with creditors to restructure almost $9bln in debt.  Details have not been released publicly yet, however, reports indicate that bond holders will exchange existing bonds for a new security at a loss and defer payments.  We expect to see PREPA debt rally off of the news.  In the past any form of clarity on the outcome of PREPA has been seen as credit positive.  Volume remains extremely light in all PR paper.  PR Benchmark 8’s of 2035 continue to stabilize in the low 70s, 5mm bonds traded @ $73 (11.47%).

30-Day visible supply: $7.5bln

 

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